diff --git a/modules/services/serviceAi/subAiCallLooping-flow.md b/modules/services/serviceAi/subAiCallLooping-flow.md
index e68b2f3c..0a7ac854 100644
--- a/modules/services/serviceAi/subAiCallLooping-flow.md
+++ b/modules/services/serviceAi/subAiCallLooping-flow.md
@@ -57,7 +57,7 @@ When an AI response is too large, it may be truncated (cut) at an arbitrary poin
 **Function:** `self.aiService.callAi(request)`
 
 - Returns `response.content` as `result`
-- Store raw response: `lastRawResponse = result`
+- NOTE: Do NOT update `lastRawResponse` yet! (only after successful merge)
 
 ### Step 4: MERGE
 
@@ -73,10 +73,12 @@ ELSE:
     IF hasOverlap = False (MERGE FAILED):
         → mergeFailCount++
         → If mergeFailCount >= 3: return lastValidCompletePart (fallback)
-        → Else: continue (retry with unchanged jsonBase)
+        → Else: continue (retry with unchanged jsonBase AND lastRawResponse!)
     ELSE:
         → candidateJson = mergedJsonString (don't update jsonBase yet!)
 
+→ lastRawResponse = candidateJson (ONLY after first iteration or successful merge!)
+
 TRY DIRECT PARSE of candidateJson:
     IF parse succeeds:
         → jsonBase = candidateJson (commit)
diff --git a/modules/services/serviceAi/subAiCallLooping.py b/modules/services/serviceAi/subAiCallLooping.py
index f8eef9b9..6427b2e0 100644
--- a/modules/services/serviceAi/subAiCallLooping.py
+++ b/modules/services/serviceAi/subAiCallLooping.py
@@ -307,8 +307,9 @@ class AiCallLooper:
                         self.services.chat.progressLogFinish(iterationOperationId, True)
                     return result
                 
-                # Store raw response for continuation (even if broken)
-                lastRawResponse = result
+                # NOTE: Do NOT update lastRawResponse here!
+                # lastRawResponse should only be updated after successful merge
+                # This ensures retry iterations use the correct base context
                 
                 # Handle use cases that return JSON directly (no section extraction needed)
                 # Check if use case supports direct return (all registered use cases do)
@@ -387,6 +388,11 @@ class AiCallLooper:
                         candidateJson = mergedJsonString
                         logger.debug(f"Iteration {iteration}: Merge succeeded, candidateJson ({len(candidateJson)} chars)")
                     
+                    # Update lastRawResponse ONLY after we have a valid candidateJson
+                    # (first iteration or successful merge - NOT on merge failure!)
+                    # This ensures retry iterations use the correct base context
+                    lastRawResponse = candidateJson
+                    
                     # Try direct parse of candidate
                     try:
                         extracted = extractJsonString(candidateJson)
diff --git a/modules/shared/jsonContinuation.py b/modules/shared/jsonContinuation.py
index 324b133d..a0ea2ea5 100644
--- a/modules/shared/jsonContinuation.py
+++ b/modules/shared/jsonContinuation.py
@@ -333,8 +333,9 @@ class JsonAnalyzer:
         cutPos = len(self.jsonStr)
         
         # Build both hierarchy contexts from the SAME structure BEFORE generating complete part
-        # Generate hierarchy context WITHOUT budget (full structure for internal use)
-        hierarchyContext = self._renderFromStructure(structure)
+        # CRITICAL: hierarchyContext must be the EXACT original JSON (for merge overlap detection!)
+        # The rendered version would have different formatting, breaking overlap matching
+        hierarchyContext = self.jsonStr
         
         # Generate hierarchy context WITH budget (for prompts) - uses same structure
         hierarchyContextForPrompt = self._renderWithBudgetFromStructure(structure, cutPos)